In Mammon Among Friends, Malcolm C. Harris, Sr. provides commentary and news about the national economy, the Wichita economy, the world of finance, and postal economics. Experiences such as forecasting postal volumes and revenues, being involved in utility regulation, and teaching corporate finance have shaped his analysis.

Tuesday, December 02, 2008

Stock Rally?

Is this the start of the rally that is a harbinger of an economic recovery? The Associated Press's Tim Paradis reported that the stock market scored "gains of 16.9 percent for the Dow since the rally began Nov. 21, 19.1 percent for the S&P 500; and 16.7 percent for the Nasdaq." For the S&P 500 that represented "the largest five-day percentage gain since March 16, 1933." True half of that was regaining what the market lost in the first two days after the election. Yesterday, we gave some of that back.

6 comments:

I don't believe the market is quite on the road to recovery just yet. With the appointments of several key positions to his team, president elect Obama has had some to do with the latest jump on Wall Street. Now that most prominent positions are filled I don't see the market getting anymore quick jumpstarts. I doubt it will keep up the recovery since the economy is still bound to get worse before it gets better. One positive spin is that black Friday turned out well with revenues peaking higher than last year.

I don't think that the recovery we have seen recently in the stock market is part of a rally for economic recovery. Many of the large increases in stock have only been reactions to large drops that we have seen over the last few months. I don't think we can consider these gains as a rally towards economic recovery until we see the markets behaving more commonly, or at least close to what we have seen in the last few years.

Five day rallies are not substantial enough to say that the economy is already recovering. The whole financial system is restructuring itself and the big three's future is in serious doubt, thus there is no way that a five day rally is of any importance. In fact until the automaker's future is decided and there is several weeks of rallies there is no need to talk of recovery.

I would also agree that the stock market is not part of a rally for economic recovery. I believe that the only reason for the stock market increasing so much is that people want to invest while a stock price is low, so the returns are much greater. We wont be able to tell if this has been a true rally until the economy starts to become more stable, which I do not see happening for a couple of months.

Even though the stock market has seen some imporvement over the past couple months from when it almost hit rock bottom, I dont think we can accept it as a rally for economic recovery. Once the stock market regains its normal standards we have seen before this time, then we can assume its back to normal or close to getting there.